Crack in the Wall

For months now all I’m asked by buyers is, “when are the prices coming down?”

I can understand frustration.  With the tightening of credit all over the world and foreclosures in outlying markets the lack of change in the valley has brought things to a screeching halt.  But last week, I saw a crack in the wall.

It was a wall built by homeowners trying to protect their equity.  They have every right to build that wall.  But in the current economic mess, things have to change.  The only way for a homeowner to protect their equity right now, is to not sell.  Homeowners need to understand that to sell right now, is to loose equity, especially at the lower end.  Buyers need to start making offers.  The worst the homeowner can say is, “no”.  The real bargains are never advertised, they are the one we create ourselves.  The wall is cracked.  When the wall is down, it will signify the end of this “changing” market.  The good deals for buyers are not when the wall is down, but as it is coming down.  Now is the time of opportunity.

THE DARK CLOUD OVER LA JOLLA REAL ESTATE HAS A SILVER LINING

For those who missed it, the Sacramento Bee posted this article Tuesday.  The 80 or so comments that follow the article make for a lively and sometimes ugly discussion.  Not particularly cheery, but there is a silver lining.  

FORECLOSURES IN FULL BOOM
In ominous sign of more to come, capital region default notices also hit record highs during first quarter of 2007.

By Jim Wasserman - Bee Staff Writer

Last Updated 1:11 pm PDT Tuesday, April 17, 2007
Story appeared in BUSINESS section, Page D3

There’s a new kind of “For Sale” sign appearing in the region’s neighborhoods — offering property repossessed by the banks — and there will be more, according to the newest round of statistics.

There is no denying the rapid decline in Sacramento home values and the challenge that creates helping home owners refinance into sustainable home loans.  My appraiser says he has seen a 10% decline in values in certain areas over the past 90 days.  Two agents I know that previously specialized in the REO (“real estate owned” by banks) business, are back in that business again, with around 300 bank-owned properties listed between them.

Here are a couple of the article’s statistics:

DataQuick said 1,505 homeowners in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties lost their houses to foreclosure during January, February and March. That’s up from 865 the previous three months.

DataQuick reported just 143 foreclosures in the eight-county region in the first quarter of 2006.

Those are some pretty startling numbers.  Andrew LePage, DataQuick analyst, goes on to say:

“This is probably the weakest (housing) market in the state, and showing some of the biggest year-over-year declines in home prices and some of the slowest sales.”

Where’s the silver lining?

The quick decline in prices does two critical things.  It heals our market faster, and it pushes prices back into a range that is affordable to the people who live here.  The population and incomes continue to grown.  Demand will ultimately catch up.   Smart buyers will think long term and start looking for their dream home now.  Better to pay a little more to buy the perfect home than to buy a “deal” you have to sell in two years because it didn’t work for you.

Don’t be shy; leave a comment.  I know you have an opinion.

Got a question?  Email me.

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This entry was posted on Saturday, April 21st, 2007 at 8:50 am     and is filed under Qualifying, Sac Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “The Dark Cloud Over Sacramento Real Estate Has a Silver Lining”

Christopher Moses Says:
April 23rd, 2007 at 3:01 pm
In all honesty this is going to be a great year- those folks who put thier clients into bad loans are going to have a reckoning that will shake their foundations. And they will be going out of business. I am not saying this is good that folks are being foreclosed on, but I am saying that the unethical are not going to be in business long. It is a Great buyers market especially if you have serious investors that want ot hold property long term this is the time. The best of Success to us all-

Marc Brinitzer Says:
April 23rd, 2007 at 3:30 pm
Chris, I couldn’t agree with you more. Long term thinking will protect people from the effects of this market on short term values.

People should focus on the home, not on the “deal”. Thanks for stopping by.

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HOMEOWNER AFFORDABILITY AND STABILITY PLAN: PART II “STABILITY"

The second part of the plan announced last week to help troubled homeowners gets at the core of the problem:  how to help “at risk” homeowners who are struggling to keep their homes.  The key objective of the “Stability” piece of the plan is to reduce monthly mortgage payments to sustainable levels for those committed to keeping the homes in which they live.  If you’re a flipper, an investor, or worried about your vacation home, you can stop reading here.

We’re still waiting for March 4th and more detail, but here’s what we know so far:

Do I have to be behind on my payments?  No, this is a big improvement over previous efforts.  You qualify without falling behind on payments if you can show that you are “at risk of imminent default” due to loss of income or employment, a big increase in your expenses, or a bad loan that is resetting to an unaffordable level.  Following the FDIC’s model of their IndyMac bank takeover, the government wants lenders to pro-actively send letters to those who appear to meet the eligibility requirements.  That will take a few weeks after the March 4th announcement, and the phones lines will be busy, so patience may be needed.

Will this reduce my principal balance?  It could.  Unlike Part I, this part of the plan offers incentives to lenders to reduce principal balances if other measures fail to bring payments down to 31% of your monthly income. Principal reduction is  still voluntary and will be the last resort for lenders, but at least there are now financial incentives in place to encourage lenders and servicers to consider this.   Furthermore, if you exhaust all other options and are forced to seek protection under the bankrupcty laws, it looks like the courts will have the ability to  “cram down” the principal balance, allowing you to keep the home with a lower payment.

Will all lenders be doing this?  No–and this is sort of a weak spot–it remains a voluntary program, but the government has placed substantial incentives on the table and expects most major lenders to participate.

What incentives will lenders have to participate?  The government is going to pay loan servicers (the bank who sends your monthly statement but may not actually own the loan) $1,000 upfront for each loan they successfully modify plus an additional $1,000 per year for three years if the borrower stays current on the loan.  To encourage lenders to work with borrowers who are not yet in default, additional incentives are paid to banks and servicers who modify loans before the borrower falls behind.  Finally, a $1,000 per year (up to five years) is actually offered to the borrower who stays current on the modified loan for the ensuing five years.  This goes toward reducing principal even further.  Pretty good stuff.

How do I qualify?  The home must be your primary residence, the payments must exceed 31% of your current income, and your loan must not exceed the current Fannie Mae/Freddie Mac loan limits for your area.  The standard national limit has been $417,000, however there were higher limits imposed in some areas for 2008, and the Plan reestablishes those for the rest of 2009.

What do I do between now and March 4th?  If you think you may qualify, then get ready by organizing your current income: pay stubs, tax returns, and anything else; your expenses for your mortgage, property taxes, car payments, student loans, credit cards; and documenting and explaining any hardships that have contributed to your current inability to make your mortgage payments.

So, we wait for March 4th to know the rest of the story, but to summarize, Part I offers a little bit of help to “responsible” homeowners who can currently afford their payments.  Part II creates incentives that encourage banks and servicers to work with “at risk” homeowners before they get behind and damage their credit; offers the possibility of principal reduction to create a livable payment;  and will pro-actively contact homeowners who may be eligible.

All in all, this is an improvement over the litany of half-hearted, watered-down efforts previously made.  Let’s hope it has the desired effect.

Vocabulary: Title Insurance

The quickest definition of title insurance is that it is insurance to protect a lender or owner against loss in the event of a property ownership dispute.

I did not feel that this definition really encompassed exactly what title insurance is, so I asked Terry Monnie at Classic Title to help me out with a more complete definition:

Title Insurance insures either the lender or the owner against things that happened with that property’s title in the past (unlike other forms of insurance such as health or life insurance which provide coverage for future sickness or death). That is, on the date the commitment for title insurance is issued, the title insurance purchaser is protected against the hundreds of title defects that may or may not affect the insured property.

There are two primary forms of title insurance: a lender or mortgagee policy and an owner’s policy.
The lender or mortgagee policy protects the lender in an amount up to the principal loan amount. This coverage declines as the loan balance declines and is accordingly less expensive than an owner’s policy.

The owner’s policy will protect the purchaser/owner of the property up to the sale/purchase price, or more if improvements are contemplated

Both types of policies are one time premiums (you only pay once and it is good for life). There can be savings if the owner’s policy is purchased at or within 30 days of the closing.

In Ohio, all title insurance premiums are established by the Ohio Department of Insurance and no title agent can charge more or less for the premiums, even though other related charges may differ (e.g. title exam fees, etc.).

In a nusthell, it is an insurance policy that protects the policy holder against any problems that may surface with regards to previous owners on title for that particular property.


Resources:

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San Diego Wine Tasting! YAY

I want a red ryder!

When I was a kid, we had a BB gun in the house, which if my father was in a good mood, I’d get to shoot. We’d go out into the wide open area behind our house and aim at beer cans or pieces of wood, and I’d see if my aim had improved from the last time I had picked up the gun. Airsoft guns are fun to use when you live in those wide open spaces, and the air rifles on PyramydAir.com look a lot like the old BB gun we had in the house. From time to time, even my father would pick it up, usually to aim it at some sort of varmit. Those old style air rifles always remind me of the movie, The Christmas Story, where ALL Ralphie wants for Christmas is that Red Ryder gun, and all those adults try to change his mind. Remember when a BB gun was THE gift to give a 10 or 11 year old boy? Those were the days, huh?

Heck, I wouldn’t mind having my own now, to protect me from all the people who ring my doorbell all day trying to sell me stuff. HA! (And I could save 5% on my purchase at the site!)